Thursday, February 27, 2014

Several weeks ago, Adam Bryant of the New York Times interviewed David Rosenblatt, chief executive of 1stdibs, an online marketplace for high-end goods. He asked Rosenblatt about some of the key lessons he has learned in his career. Rosenblatt talked about struggling to determine how he should allocate his time during his early days as a chief executive. He then explained that he had established some rules that helped him in this area. Here's an excerpt:

I
learned Rule No. 1 from Irv Grousbeck, who teaches an entrepreneurship
class at Stanford Business School. And that is, very simply, “You can
hire people to do everything but hire people.” Rule No. 2 that I think
about every day is, “Only do the things that only I can do.” So if it’s
someone else’s job to do it, I try not to do it. If I find myself doing
too many of those things that are actually someone else’s job, then it
relates back to Rule No. 1 — I probably don’t have the right person in
that role. But
just like anyone in any role, it’s important to understand, where is my
comparative advantage? What am I better at than almost anyone else?

The article contains more on this subject. I recommend taking a look. The two rules are a great start though. I think the second one needs to be an explicit question that each leader poses to himself or herself. As the leader on a major program here at Bryant University, I know that I need to address this question. As I launched the program, I was doing many things. Now, as the program matures, I have to think about the way I'm spending my time. I'm clearly not playing to my comparative advantage. Many leaders find themselves doing a bit of everything when an organization is in start-up phase. Then, as the firm grows, they need to focus on that comparative advantage question. It's hard to let go, but you can't make the organization successful without addressing this issue.

Wednesday, February 26, 2014

Josh Bersin has written a fascinating article for Forbes about measuring the performance of your people. He argues that many performance appraisal systems are flawed because they presume that performance follows a Bell Curve (normal) distribution. However, Bersin points out some new research that suggests that a Bell Curve does not apply. He states, "Research conducted in
2011 and 2012 by Ernest O’Boyle Jr. and Herman Aguinis (633,263
researchers, entertainers, politicians, and athletes in a total of 198
samples). found that performance in 94 percent of these groups did not follow a normal distribution. Rather these groups fall into what is called a “Power Law” distribution."

What does that mean? A "Power Law" distribution has a very small number of exceptional performers, a wide swath of people who are solid, but not great, performers and a few folks who are substantial underperformers. The high performers are so exceptional that they drag the mean up quite significantly. In other words, it's a skewed distribution. The median falls below the mean. Put another way, most people fall below the mean.

You can see the problem with performance appraisal systems, particularly those "rank and yank" systems that assume a normal distribution. You can also see why some factors other than public policy may be driving income inequality. In many industries, these "hyperperformers" get paid extremely high sums of money. Finally, Bersin offers some thoughts on how we think about the large number of people "in the middle" of the distribution:

The power law distribution (also called a Paretian Distribution) shows
that there are many levels of high performance, and the population of
people below the “hyper performers” is distributed among “near
hyper-performers” all the way down to “low performers.” [] You still have a large variation in people and
there will be a large group of “high-potentials,” a group of people who
are “potential high-potentials,” and a small group who just don’t fit at
all. The distribution reflects the idea that “we want everyone to become a
hyper-performer” if they can find the right role, and that we don’t
limit people at the top of the curve – we try to build more of them.

Tuesday, February 25, 2014

Two weeks ago, the New York Times ran an article titled, "Would You Lie for Me?" The article featured the work of scholar Vanessa Bohns and her colleagues. In a series of studies, Bohn and her co-authors examined whether people could compel others to engage in unethical acts. Moreover, they looked at whether people thought that they could persuade others to behave unethically. The results demonstrated that most people underestimated the extent to which they could pressure others to comply with their requests. Here's an excerpt:

In
one study, 25 college students asked 108 unfamiliar students to
vandalize a library book. Targets who complied wrote the word “pickle”
in pen on one of the pages. As
in the Milgram studies, many of the targets protested. They asked the
instigators to take full responsibility for any repercussions. Yet,
despite their hesitation, a large portion still complied. Most
important for our research question, more targets complied than
participants had anticipated. Our participants predicted that an average
of 28.5 percent would go along. In fact, fully half of those who were
approached agreed. Moreover, 87 percent of participants underestimated
the number they would be able to persuade to vandalize the book.

The scholars replicated this finding in a series of different studies. What's the implication of these findings? In my view, leaders need to take stock of their actions. They need to think about how much their behavior, however subtly, may be affecting others' behaviors. Leaders may not realize how much they may be influencing their organization members. We may not think we are placing undue pressure on others, yet in fact, these colleagues are feeling compelled to act in a certain way. In some cases, we may be pressuring them to behave in ways that are not consistent with their values or the stated organizational values. We may not even intend to pressure them. Nevertheless, we are influencing them. In addition, we may fail to appreciate how difficult it might be for lower level employees to ask questions, push back, or resist engaging in certain conduct. They may comply without ever questioning a course of action. We may fool ourselves into believing that they would object if they felt strongly. Bottom line - they may not object because they feel such social pressure to comply.

If you are CVS, you probably don't mind this SNL ad parody. It has generated a ton of free publicity for the firm. Some companies would get upset at comedians poking fun at them. Thankfully, CVS understood that it was all in good fun, and that it was actually a positive thing for the firm. In GoLocalProv, CVS Spokesperson Erin Pensa commented, "We did see it and feel that
parody is a form of flattery! And we encourage our shoppers to check out
the truly fun and unexpected Valentine's Day gifts that we are offering
this year." Now that's the way to respond to a bit of comic relief. More firms should take a cue from CVS and not take themselves too seriously.

Make your middle school English teacher proud. Svei says adjectives
and adverbs should be swapped out with anecdotal examples such as how
you used Excel to build a model that went on to bring in XY and Z for
your department. To cater to an ATS (applicant tracking system) and a human hiring manager looking for a good
collaborator, she suggests adding details such as a role you played on a
team that resulted in the development of a product or process. “If they
never talk about ‘we’ they probably won’t progress,” through the search
process Svei says.

I see many students make this mistake. They cite their grade point averages, area of concentration, skills, and the like... but they don't offer enough concrete examples of projects that they have done. Employers want to hear about the work that you have done. Of course, students will not have much work experience (perhaps only an internship). What can they do in that circumstance? In my view, they should turn to the applied learning projects that they have done for courses. Talk about the project you did for a local company as part of your market research class, or the consulting project you did for a factory in your region for an operations management class. Those projects, often conducted as part of a team, represent concrete examples of how you can accomplish a challenging task, meet a tight deadline, work as a member of a team, and interact with professionals in your field. Actions, not adjectives, should be the point of emphasis. I would argue that the same mentality should flow through to the interview. Don't tell the interviewer about your courses and grades. Tell them about the projects you completed in specific courses, in which you had to leave campus, enter the real world, and actually accomplish something for a client organization.

Friday, February 21, 2014

When a failure occurs, people can adopt two different mental models for explaining the reasons for that poor performance. The "individualistic" perspective looks to blame the "rotten apple" for the failure. Who made serious mistakes, and what should we do about those people? In these cases, the emphasis is often on holding people accountable. By contrast, the "systemic" perspective asks the question: "Is there a rotten apple or two here, or do we have a bigger problem - i.e., is the barrel itself rotten?" In other words, do we have cultural and organizational problems that contributed to a failure? Here, we ask the question: If we just replace a few individuals, would other new people in those roles behave in a similar manner? Would they behave similarly because they will face the same culture, environment, structure, etc.?

In my view, managers make a mistake when they go to the extreme in adopting one perspective or the other. If you emphasize the "individualistic" perspective too much, you may engage in too much finger pointing. The blame game may drive out all opportunities for learning and improvement. Moreover, you may repeat failures, because you have not addressed underlying causal factors beyond human error. If you emphasize the "systemic" perspective exclusively, you create a perception of a lack of accountability. High performers question why low performers are allowed to continue behaving as they do without being sanctioned in any way. In my experience, most organizations make the mistake of relying far too much on the "individualistic" perspective. As a result, we condemn ourselves to repeat the mistakes of the past.

A whopping 35% of respondents said that the most important quality in a
creative businessperson is a willingness to kill ideas they love.
Having a lot of those ideas in the first place was most important to 28%
of people polled, and being an easy collaborator topped the list for
29%. Being a good manager? Important to business, but not necessarily to
creativity.

How does one become more creative? According to Fast Company, "An overwhelming number of those polled tied increased creativity to
breaking out of patterns, exploring new environments, and being open to
the unfamiliar."

Question for all those reading this blog: What are you doing to expose yourself to new disciplines, ways of thinking, environments, people, and ways of doing business? How can you access the unfamiliar, rather than just focusing narrowly on what you know best?

Wednesday, February 19, 2014

Peter Cappelli, Monika Hamori, and Rocio Bonet have published a fascinating article in Harvard Business Review about the backgrounds of the top executives in Fortune 100 companies. Their analysis compares executives today to those at the top of Fortune 100 companies several decades ago. Not surprisingly, they find that many executives graduated from top business schools. Interestingly, Sears (75%), Sunoco (70%), and Disney (63%) have the highest number of senior executives with MBA degrees. Of course, given Sears' performance in recent years, this data may not support those who champion the value of an MBA degree! Ouch!

The study offers some other fascinating results. For instance, their analysis examines the amount of "lifers" at these large firms. In other words, how many top executives have spent their entire career at one company? Some firms have seen major changes in the percentage of lifers since 1980. For instance, Honeywell has experienced an 80% decrease in lifers since 1980. However, other firms still have many people who started their career at the same firm. Here's a fascinating excerpt:

The 20 companies that have been in the Fortune
100 since 1980—the most firmly established of the great
corporations—still had at least one foot in the Organization Man era
even in 2011. Almost half their senior executives were lifers. At
Chevron and UPS, that was true of 90% of top-team members.

Finally, the study does show an increase in diversity in the c-suite. Many more women and people of international backgrounds occupy senior roles today as compared to 1980. However, the scholars note, "Both groups are still far from achieving parity with U.S. men."

Monday, February 17, 2014

US Dept. of Commerce Chief Economist Susan Helper and HBS Professor Rebecca Henderson have written a new working paper examining the decline of General Motors. They review many of the traditional explanations for the firm's demise, and they try to dig deeper to understand why GM failed to change sooner and more effectively in response to external threats. Helper and Henderson base their explanation on the concept of "relational contracting" as explained here:

Here we make the case that GM struggled for so long because Toyota’s practices were rooted in the widespread deployment of effective relational contracts agreements based on subjective measures of performance that could neither be fully specified beforehand or verified after the fact and that were thus enforced by the shadow of the future and that GM’s history, organizational structure and managerial practices made it very difficult to maintain these kinds of agreements either within the firm or between the firm and its suppliers.

To step back, the scholars first argue that it was very difficult for GM to understand precisely what were the secrets to Toyota's remarkable success. Strategy scholars refer to this barrier to imitation as "causal ambiguity." In other words, the precise drivers of competitive advantage are not well understood by those outside the firm. In hindsight, of course, we can explain Toyota's success with relative ease. At the time, though, the details of how the Toyota Production System worked, and how it could be imitated, were very difficult to ascertain. Observation of the system at work, perhaps by touring the factories at Toyota, would do you no good. Much deeper research was required.

Beyond that, the scholars argue that emulating Toyota, even after an understanding had developed, was very challenging. Here they base their argument on the relational contracts concept. They describe this problem both with regard to how GM related to its employees, as well as to its suppliers. Here's an excerpt from the working paper, focusing on the workers in GM's factories:

It was, for example, very difficult to specify under exactly what circumstances a worker should pull the andon cord, or what behaviors constituted being an effective team member. Shutting down the line for a popular model could cost $10,000 in lost profits per minute (Helper 2011), so management setting up this system needed to be confident that a worker deciding to pull the andon cord would have both the knowledge and the incentive to exercise sophisticated judgment. Conversely, workers would only pull the cord if were confident that an appropriate relational contract wasin place (Gibbons and Henderson 2013). Similarly MacDuffie’s(1997) detailed description of the practices underlying shop-floor problem solving in the industry suggests that successful process quality improvement depended on processes that allowed for the inclusion of multiple perspectives on any single problem, the use of problem categories that were “fuzzy,” and the development of a common language for discussing problems. It seems implausible that employees could be motivated to participate in these kinds of activities through the use of formal contracts that specified in advance every kind of quality problem and its appropriate response.

Why did GM have a hard time building relational contracts? Helper and Henderson offer several reasons. In my view, the most compelling explanation is that GM lacked the credibility to work in this very different manner with both the employee unions and the external suppliers. The lack of trust precluded working in this manner. Toyota management, on other hand, had developed a deep reservoir of trust from which it could work much more flexibly with workers and suppliers. Put simply, there are two ways to make a relationship work: trust vs. traditional legal contracts. GM relied on the latter, but emulating Toyota required the former. It could not make the switch.

Friday, February 14, 2014

The Wall Street Journal reports that Jos. A. Bank has agreed to acquire Eddie Bauer for $825 million. As you may recall, Jos. A. Bank has been in a back-and-forth contentious situation with Men's Warehouse, with each firm trying to take over the other over the past few months. Now, Jos. A. Bank has moved in a different direction. Does it make sense? Are there true economies of scope here between the retailer of men's suits and the seller of outerwear and sportswear?

As an outsider, it's hard to determine if the synergies justify such a merger. However, I would argue that we should be cautious about such a deal. When we think about mergers, we often look for signs that the firms are engaging in "related" diversification, i.e. that significant synergies exist. At first glance, we might conclude that these two firms are related, since they both sell apparel. However, we should be much more disciplined about what "related" truly means. Consider the cases from a decade ago, when many companies who sold alcoholic beverages combined in a wave of mergers and acquisitions. Many people initially endorsed these deals. After all, a beer producer buying a winemaker looked like "related" diversification . Surely, significant synergies existed. Yet, it turns out that beer and wine companies are not as related as we might think, even though both are in the business of selling alcohol. The synergies turned out to be much less substantial than many players thought. The challenges of integration were substantial. That lesson should be applied here, before we jump to the conclusion that these two apparel companies can easily combine to achieve significant synergies.

Thursday, February 13, 2014

Comcast has announced that it intends to acquire Time Warner Cable for $45 billion. We really should not be surprised by this deal. As industries mature and growth declines (or evaporates), firms look to consolidation as a means of cutting costs and enhancing the bottom line. With cord-cutting a potentially growing phenomenon, the cable companies have to be wondering how they will grow profits moving forward. Finding cost savings through consolidation may be a reasonable strategy. Beyond that, the news raises several interesting questions for the key players in the media and entertainment business.

1. Will federal authorities intervene to stop the merger on antitrust grounds?

2. Will Comcast agree to expand its net neutrality agreement to cover TWC subscribers as well?

3. Will cable television networks find themselves in a disadvantageous position as they try to negotiate with Comcast-TWC? How much will the enhanced bargaining power of Comcast-TWC affect profit margins for the major entertainment content providers?

4. Perhaps most interestingly, will this hasten or dampen efforts to crack the dominant position that cable has in distributing content? Will firms such as HBO become more reluctant to strike new deals to distribute content, or will they become more emboldened to find new distribution avenues given the increased clout of Comcast-TWC? In other words, is HBO now going to be more willing to sell HBO Go subscriptions directly to consumers? Similarly, will ESPN become more or less willing to consider selling Watch ESPN subscriptions to consumers directly? What about Netflix? What are the implications for that firm, as the cable players are clearly concerned about cord-cutters that rely on Netflix for a large portion of their entertainment viewing?

5. What about Apple? Many people, including me, believe that Apple has the means to build a great television, but they are limited in their ability to provide great content. Apple does not want to simply build a TV; after all, that business is intensely competitive. They will only enter the market if they can have access to content, as they did with iTunes. In the music business, the key players struck deals with Apple because selling their songs for 99 cents was better than watching their songs stolen. With movies and television, the major content providers have been reluctant to offer their content to Apple. Will things change, as the cable companies gain even more clout?

"In most meetings -- and in most everything we do in business -- we
are usually trying to keep things moving forward and just 'get things
done.' This is a natural impulse, and of course it's important to get
things done and stay on schedule. The problem is, this leaves little
time to question assumptions, as in, Why are we doing this particular thing? Have we really thought it through, and considered other possibilities?"

I
think Berger is right about the "getting things done" mentality. I
would put it this way. We often fixate on the "how" question - as in,
how are we going to do this? We often overlook at the more fundamental
question: Why are we doing this?

The
problem, of course, is that people are often afraid to ask the naive
questions. That's why leaders need to make sure they are asking these
types of questions from time to time. They accomplish two things when they pose such questions.
First, they might uncover some key assumptions and alternatives.
Second, they set a tone and an example. They make it easier for others
to ask such questions.

One final thought - timing is everything. You do have to consider the timing of your question. You don't want to embarrass folks or become disruptive when you ask such questions. You want to think about the audience, and consider how you may impact a colleague. You certainly don't want to unintentionally undermine a peer or make them look bad.

Friday, February 07, 2014

Efraim Benmelech and
Carola Frydman have conducted some intriguing research regarding military veterans in the business world. Three key findings emerge from their work. First, CEOs who have served in the armed forces perform better than other CEOs in industries that are experiencing turbulence, distress, or decline. Second, CEOs with military experience are more conservative in their investment behavior. They are less likely to make bold, risky capital and R&D investments. Finally, CEOs with military experience are much less likely to commit fraud.

Based on those results, one might be eager to search for senior executives with experience in the armed forces. However, the authors found a dramatic decline in the number of CEOs with military service. According to Kellogg Insights, which featured these scholars' research, "Among large, publicly held firms, the proportion of CEOs with military
service in their background has decreased by an order of magnitude since
1980—from 59% to only 6.2%." In sum, military veterans appear to make good corporate leaders, but the competition to attract these top notch former soldiers has become much more intense.

Thursday, February 06, 2014

We’re a Silicon Valley company, so we have a
very full kitchen. I hired a new head of business operations, and she
decided we were going to switch out the vendors. There was a week when
the supply went very low because the next vendor was coming in a couple
of weeks later to kind of set up. Because we hadn’t said anything about
it, and the food was starting to run low, people started saying,
“There’s layoffs coming; bad things are going to happen.” I
actually had to say in an all-hands meeting, “Guys, it’s just the nuts
in the kitchen. That’s it.” But people look for symbols, and they look
for meaning where maybe there isn’t any. So now we’re overcommunicating.
You have to talk about the little stuff as well as the big stuff, just
to make sure folks aren’t running away with ideas.

I can't stress this enough... if you leave an information vacuum in your organization, people will fill it... often with unfounded rumors and speculation. That's why sweating the small stuff, and leaning toward "over-communication", is essential if you are a leader. People will interpret actions based on their own worries and concerns, and they will infer important meaning even when you deem certain issues and actions largely inconsequential. Remember that all eyes are on you as a leader. You may not intend to signal or engage in symbolism, but people are taking away meaning from even the seemingly small actions and issues that you may not think warrant much of your time and attention.

After conducting eight different studies looking at a variety of
influences and experiences, Mogilner and Bhattacharjee conclude that
“younger people who view their future as extensive gain more happiness
from extraordinary experiences.” As people get older, and more aware
that their time on earth is finite, ordinary experiences become
increasingly associated with happiness, and even begin to catch up to
the extraordinary in the amount of joy and contentment they produce.

What's the break point in terms of age? It appears to be the mid-30s (ouch, I'm in the older group!). What do they define as ordinary vs. extraordinary? Ordinary may be a wonderful meal shared between mother and daughter. Extraordinary might be a trip to Paris or a weekend hiking in the Rocky Mountains.

How can marketers capitalize on this research? The scholars argue that firms can even tailor their advertising to account for these findings. Featuring the extraordinary might be useful in an advertisement for a product aimed at teenagers. Featuring a happy ordinary event might be best-suited for an advertisement targeted at Baby Boomers.

Michael Roberto

The Great Courses

About Me

I am the Trustee Professor of Management at Bryant University in Smithfield, RI. I joined the faculty after serving for six years on the faculty at Harvard Business School.

My research, teaching, and consulting focuses on leadership, with a particular emphasis on decision-making and teams. I have published two books based upon my research: Why Great Leaders Don't Take Yes For An Answer (2nd edition to be released in May 2013), and Know What You Don't Know (2009).